China, India plan Iran oil cuts of 10% or more

Japan ministers say they are close to a waiver deal with United States, which is pushing Iran's big Asia buyers to join international sanctions against Iran over its nuclear program.

petrochemicals plant in Assaluyeh, Iran_390.
(photo credit:Reuters)

BEIJING/NEW DELHI - China, India and Japan are planning cuts of at least 10 percent in Iranian crude imports as tightening US sanctions make it difficult for the top Asian buyers to keep doing business with the OPEC producer.

The countries together buy about 45 percent of Iran's crude exports. The reductions are the first significant evidence of how much crude business Iran could lose in Asia this year as Washington tries to tighten a financial noose around Tehran.

The cuts would add to a European Union ban on Iran oil imports, which comes into effect on July 1, to restrict the flow of vital foreign exchange to Tehran under pressure over its nuclear program.

Japan is close to an agreement with Washington on the size of cuts needed to win waivers from the US sanctions, two ministers said. The Yomiuri newspaper, citing unidentified sources, said the two sides would settle on an 11 percent cut.

The Indian government is pushing its refineries to cut imports by at least 10 percent, two sources said. India has said it will not abide by US unilateral sanctions, so its response could indicate the increasing uncertainty of doing business with Iran.

China's Unipec, the trading arms of Sinopec Corp, is likely to cut imports by 10 percent to 20 percent under 2012 supply contracts, a Chinese industry executive with direct knowledge of the deal said.

China had already cut back sharply on Iran crude purchases in the first quarter of 2012 while it haggled over full-year supplies contracts. Taking those cuts and planned purchases by China's only other major importer -- Zhuhai Zhenrong Corp -- into account, Reuters calculates China's total cuts this year will amount to about 14 percent.

In a further blow to Tehran, East Asian purchases of Iranian fuel oil is set to slump to a six-month low in March, according to comments from Singapore-based oil traders and an examination of shipping reports.

Indian and China cuts

India is Iran's second-biggest crude buyer after China. Iran provides about 12 percent of India's demand, or 370,000 barrels per day (bpd).

New Delhi indicated refineries should cut their imports from Iran by about 10-15 percent in the year through March 2013, one source said.

Another source said the cut should be "substantial."

The government had indicated it did not intend to seek a waiver from US sanctions by cutting Iran crude imports and that it intended to keep trade flowing with Tehran.

It is planning to offset some Iranian imports against India's corresponding exports via a rupee payments system to keep trade moving.

Still, sanctions are cutting off payments routes. India's refiners have used Turkey's state-controlled Halkbank for payments to Iran in euros since the middle of 2011, but are unsure how long that route will last given tougher EU sanctions. Turkey is seeking membership of the EU.

China has also rejected US sanctions as overstepping the mark but has already made substantial cuts in Iran crude imports as it negotiated with Tehran over terms and prices for 2012 deliveries.

The industry executive said Unipec would import as much as 20 percent less crude in 2012 compared with 2011, although he said most of those cuts had been achieved in the first quarter.

Reuters calculates first-quarter cuts by China averaged for the whole year would be around 71,000 bpd, a 14 percent reduction from 2011 contract imports of about 500,000 bpd.

Even though China is to cut 2012 imports, it increased Iranian purchases last year by 30 percent.

Zhuhai Zhenrong and a much smaller buyer of Iran crude, Chinaoil, are maintaining the level of their purchases in 2012 compared with 2011, so Unipec will absorb the cuts.

In January, Washington imposed sanctions on Zhenrong for its dealings with Iran in what analysts interpreted as largely symbolic because the Chinese company has limited US business exposure.

However, they said it did send a signal to other Chinese companies that have invested heavily in the United States, including Unipec's parent Sinopec.